The Centre on January 24, 2024 granted approval for Indian public companies to directly list their securities on the international exchanges at the GIFT International Financial Services Centre (GIFT-IFSC). The international stock exchanges at GIFT-IFSC, where direct listing can be done are the India International Exchange and NSE International Exchange. This move marks a departure from the erstwhile restriction on Indian companies issuing or listing equity shares abroad.
A comprehensive regulatory framework was released in this regard, and the Foreign Exchange Management Act (FEMA) rule was also amended on January 24, 2024.
The IFSC is a strategic initiative to ‘onshore the offshore’, thereby bringing back India-related financial services and transactions that are currently abroad. Situated in Gujarat, GIFT IFSC is the maiden IFSC set-up in India and aims to deepen the Indian financial system and increase competitiveness of Indian companies by allowing easy flow of global capital into the country. The regulatory and business environment in GIFT IFSC allows for certain tax exemptions so that companies having a base in GIFT-IFSC can be more competitive.
There are conditions for entities from countries sharing a land border with India, such as China, to participate in direct listing. Approval from the central government is mandated for them to invest in equity shares of Indian companies.
“A holder who is a citizen of a country which shares land border with India, or an entity incorporated in such a country, or an entity whose beneficial owner is from such a country, shall hold equity shares of such public Indian company only with the approval of the central government,” the rules say.
In case of listed entities, shares must be issued at a price not less than the price applicable to domestic investors. For unlisted entities, pricing will be determined through a book-building process, thus ensuring it does not fall below the fair market value as per the applicable FEMA rules.
Says Mahavir Lunawat, managing director, Pantomath Capital Advisors and Member of the Working Group on IFSC Direct Listing of Listed Indian Companies on IFSC Exchanges: “To tap global capital, Indian companies can now list directly on IFSC exchanges. Direct listing at IFSC enables corporates seeking cross-country capital raising to tap cross-listings, primarily for substantial finance, which in turn can seize expansion opportunities both domestically and internationally. This has been hugely facilitated by the rapid market liberalisation and greater integration of the global securities market. This decision aims to further propel the transformation of IFSC into a thriving global financial hub. This will provide access to global capital and result in wider capital formation for the Indian business enterprises.”
The following can be the effect of increased investors from abroad.
Higher Company Valuation: Enhanced valuation of a stock can contribute to higher returns for investors.
Boost To FDI: Increased foreign direct investment (FDI) can contribute to growing confidence in the Indian market, potentially driving economic growth and resulting in overall growth of the stock markets.
Growth Opportunities For Companies: Direct listing opens up more avenues for companies to access global markets, thus helping in business expansion.
Flexibility: Indian companies can now raise funds in both rupee and foreign currency through GIFT-IFSC, thus offering diversified capital-raising options.